3 Keys to Gaining a Competitive Edge Through Spinouts

Most companies follow a similar playbook on their quest for a competitive edge. They engage in research and development to iterate and improve their offerings, use mergers and acquisitions to expand their footprint, and devote corporate venture capital to strategic investments in promising startups.

These common strategies might help a company incrementally improve its margins, but they won’t necessarily lead to long-term success. You can’t achieve a sustainable competitive edge if you’re doing the same thing as everybody else.

The best companies don’t just focus on products and services that already exist; they also continuously blaze new trails. They make innovation a core business function and dedicate teams and resources to exploring innovative ideas and projects. There’s also a growing trend of established organizations looking at spinouts as part of their innovation strategy, as a way to survive and thrive in the marketplace of the future.

Spinout ventures allow companies to extend their market reach, unlock new lucrative revenue streams, and even profit off of their competitors. By embracing this approach and establishing a portfolio of 20 to 30 startups, smart enterprises could end up creating the next billion-dollar unicorn that revolutionizes an entire industry.

Launching successful spinouts takes a lot of legwork and forethought. Before you begin, your organization needs to be prepared to support and foster the necessary innovation. These three steps will set you up for success:

Create Your Innovation Thesis

Write a clear, definitive statement that describes your mission, process, and goals. This thesis will serve as a guiding light as your team generates ideas and transforms them into viable ventures.

Explain why your company wants to launch spinouts. Is this a strategic investment or a financial investment? Perhaps your primary goal is to expand your reach and grow revenue. Or maybe this is a defensive move to help your company stand against competitors and protect its footing in the marketplace.

You also want to clarify which growth horizons you are targeting with your innovation efforts. Horizon one is typically focused on the here and now, with the primary goal of optimizing your existing offering and business model. Horizon two is where you might start creating spinouts, with an eye on emerging business opportunities in adjacent markets.

The goal of these spinout ventures is to nurture and capitalize on trends that show promise but haven’t yet hit their stride. Your spinouts in horizon three are the most futuristic. This is where your business has the potential to create something completely new, take advantage of disruptive opportunities, and transform entire industries.

Instill a Culture of Innovation

Innovation should be considered a critical part of the business development process — and corporate venture building an important addition to the business innovation strategy.

Your entire company — from top to bottom — must embody a culture of innovation that supports and encourages the creation of startups. This is not the kind of culture change that can be forced on your team, especially if innovation was not built into the culture from the start. And making such a cultural shift won’t happen overnight; instead, you should expect it to be a gradual process that gets stronger with time.

Education can play a significant role in smoothing the transition. The more you inform your team members and include them in your decision-making process, the better your outcomes will be. Across the entire company, strive to develop a shared understanding of what innovation is and why it is important to the organization.

Use your investment thesis to explain the value of launching spinouts and describe your plans in detail. Also, make sure employees understand the benefits they could personally reap from launching successful spinouts.

A culture of innovation must begin at the top. The CEO, executives, and managers all need to buy in and lead by example. They should serve as cultivators of innovation who look both internally and externally for inspiration. Talk to employees and engage them in the ideation process. They will likely be the biggest source of ideas for emerging opportunities, and including them will also help quell any fear or uncertainty they feel about this cultural shift.

Optimize Your Organizational Structure

Most organizations are not properly structured to support innovation. Instead, they are structured for operational excellence — which, unfortunately, sometimes means they hinder innovation.

Innovation needs room to grow and thrive. Your corporate spinouts and their teams need to live outside of the organization as separate entities. As such, the new organizations need to be free from the governance of the larger parent organization and have the freedom to experiment — just like any other startup.

It is also important to ensure you are assigning the right people to this task. As you instill your culture of innovation, it will become apparent which employees are most enthusiastic about the project and want to be included. From there, as spinouts launch, you can offer your best and brightest workers the opportunity to run each venture. Your most ambitious employees will likely appreciate a chance to become the founder or CEO of a startup and to get a good chunk of equity in the organization.
When it comes to launching successful spinout ventures, you greatly increase your risk of failure if you don’t lay a solid groundwork ahead of time. Without a clear investment thesis, a model for growth, executive support, and a culture of innovation, you’re essentially trying to build skyscrapers on top of a weak foundation.

Make innovation one of your chief organizational priorities. Give it the staffing, funding, and visibility it deserves. Your innovation group isn’t just a playpen set off to the side of your main business; it’s a key driver of your success and longevity. In fact, it could hold the ticket to your most profitable wins and determine the direction of your organization’s future.

Along the way, celebrate your successes and learn from your failures. There’s no guarantee that your organization will launch a unicorn, but there is a guarantee of learning, development, engagement, and growth — both to individuals and the enterprise as a whole.

Michael Ellenby

Michael Ellenby is the director of corporate innovation at Coplex, a venture builder that partners with industry experts, entrepreneurs, and corporate innovators to build the next wave of high-growth tech companies.